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COVID and the housing market
- Thread starter mimico_polak
- Start date
Just to be clear LC that wasn’t directed at you. It was just a general comment overall. I’m all for everyone doing what works for themselves. Maybe I could have even made better choices ?. Who knows.
We good, @SVeezy. I just happened to hit reply a moment after your message.
My market returns are vastly higher than my housing returns (assuming equal leverage and capital). I don't like when others have the ability to upset my life and strongly dislike moving so I picked housing which was clearly a financial impairment. Even when I picked housing, I chose to pay off the mortgage to gain security which was a horrendous decision financially but great emotionally. We all try to pick the path we think is best for us and only in hindsight can we see if another path may have been a better choice.Just to be clear LC that wasn’t directed at you. It was just a general comment overall. I’m all for everyone doing what works for themselves. Maybe I could have even made better choices ?
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I’m always trying to push to pay down the house but my better half often has other intentions. I don’t pretend to know what’s best I just know what makes me most comfortable. I’d love to invest in more favourable things but I can be honest and say that investments are probably one of my weakest points. That’s why I play the safe game.
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It depends. If you have assets that are growing fast enough to fund the ducati without being depleted, have at er. Even if you don't many people choose fun today over security and/or fun tomorrow. Personal choice, do what's best for you.
I'm not sure paying out a mortgage as fast as possible is ever a bad idea, sure the investemnet folks would like you to give them all your extra dosh to manage on your behalf. But you still have to pay out the mortgage eventually , the market does not always reward, but the interest on the mortgage is always there
@bigpoppa, always buy the Ducati
@bigpoppa, always buy the Ducati
Paying out the mortgage on the last house was getting me a guaranteed 1.74%. Market accounts were getting me 15%+ in most years. If I had invested the money instead of crushing the mortgage, the current house would have been paid off instead of another 20+ years to go. Crushing the mortgage does bring you security and stability though which a market account can never guarantee.
While I'm all for investing if you've got the discipline to do it....go for it! Personally I'm very conservative and the mortgage is a tangible that I can see go down month by month.
If I understood / learned more about investing I'd be doing that also, but for now I'm just pumping in a little bit extra every 2 weeks into the mortgage and watch it go down. I'll go 3x the current payments once the older one finishes daycare to speed up that process.
If I understood / learned more about investing I'd be doing that also, but for now I'm just pumping in a little bit extra every 2 weeks into the mortgage and watch it go down. I'll go 3x the current payments once the older one finishes daycare to speed up that process.
Mad Mike
Well-known member
I’m pretty convinced in home ownership. It’s not the path to rich, but consider if you plunked $20k down on a house in 2000, that 20k would be worth $1.5m today and the asset would be paid off or close. It could quite possibly continue to grow in value, it will for sure be paying a dividend of $30000 year right now (the diff between rents and a mortgage. )
If one invested those ‘dividends’, that initial 20k investment, you would be well over $2m now. Tax free as well.
That’s a pretty good return, and not sophisticated investing.
Buying the house is normally a good play (especially as very few people would go into the investment market leveraged 20:1). The question is what happens to any extra money you have. I think that paying the house off as slowly as possible and putting any additional money into the market gets you ahead most of the time. I don't have the heart to do that. I want stability and I want a mortgage than can be comfortably covered by one income to allow flexibility. The market doesn't guarantee those things, crushing the mortgage does (given some time). The last house we tried to pay off quickly. This house should be our house for the next 20+ years so I am basically paying the minimum on the mortgage and investing any extra we can scrape together. If interest rates spike (which I doubt), I can sell the investments to hammer the mortgage.
Mad Mike
Well-known member
I say stick to the 20 year plan on the mortgage. My goal was mortgage free after 20 years, meaning the house pays a tax free dividend equal to what it would cost me to rent same house.
along the way I invested the difference between my mortgage and whist it would cost for rent. In 2000, my mortgage was equal to rent at the time, about 15k a year. Fast forward to 2010 and my mortgage now costing me $1000mo, while renting a similar place would be $2500/mo. Invest the difference, $1400/mo. Fast forward to 2000, mortgage paid off, renting equiv house would be 3500/mo. Invest $3500 mo.
Or lean back and say... I’m OK, I can really afford to work on my toy collection.
Anyone who chose to rent in the GTA (and much of Canada I suspect) over the last 10-25 years got completely burned.
With interest rates continuing downward, many peoples mortgages had low payments in the latter half of the mortgage.
I lived in Sonoma Heights (Woodbridge) from 2001 to 2005. In 2001 my parents paid $262000 for a new detached. The house is currently for sale for $1.366m and I wouldnt be suprised if it sold for $1.45m. Had they kept the house and renewed the mortgage at the going rate every 5 years, they would owe about $50K right now. The mortgage payment would be $1200. It would currently rent for $3500.
Money saved from renting for lets say the past decade, invested in the S&P index, would have returned 15% a year.
Even when you factor maintenance, property tax, real estate fees, the buyer is well over $1m ahead of the renter.
I like that plan. Problem for me is I couldn't afford to rent my house so i couldn't use that strategy. Are you using theoretical numbers? I thought your house would rent for a lot more than that.
In hindsight, with the lowering of interest rates propping up both the value of housing and the value of equities, the optimal strategy would have been what you described above. Keep renewing and extending the mortgage to 25 years, lowering the payment substantially from what it was 10+ years ago (when rates were 6%) and invest the rest.
The math isn't that simple. If they put their leveraged downpayment into the market ($262,000 in 2001), 16 years @ 15% gets you to 2.45M. 1M ahead of the owner minus the rent paid along the way. Obviously paying rent plus paying off the investment loan puts a hurting on cashflow. I think the key differentiator is that most people don't think twice about huge leverage on a house but very few leverage at all in the markets.
Mad Mike
Well-known member
It’s not an exact thing, my point is that you fix a mortgage, then over time it likely becomes a lot less than rent. Instead of blowing the difference, invest some for the future. That’s what i did, now I’m comfortable and don’t pay rent or mortgage, so I blow more on fun stuff.
Yes, I could probably rent the coach house for $1500 and the house for $4500 - but I like my privacy and my current tenant (me).
D
Deleted member 50930
Guest
With interest rates so low throw everything in a solid eft then enable drip??
8% return is better than 2% over 20 years
Like I started investing in my early 20s and in ten years the compound interest is insane
By 40, it should equal a decent salary
8% return is better than 2% over 20 years
Like I started investing in my early 20s and in ten years the compound interest is insane
By 40, it should equal a decent salary
The return with dividends reinvested of the S&P 500 over the period 2001 to 2021 is 401%.
They put 5% down in 2001. $13100
If invested into the S&P it would be worth $65631 today..
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